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I am 30 years old and my husband is disabled and unable to work, so I am the one income for our family. (We do not have any children.) Due to a number of factors, I am considering going back to school and starting a second career that is more stable and fulfilling.

Current Assets

Our current assets are as follows:

  • $32,000 Cash
  • $72,000 Primary residence (mortgage paid in full)
  • $40,000 Investment property (owe $16,000 in personal loan)
  • $70,000 Investment account
  • $16,400 Roth IRA
  • $12,000 Simple IRA

(The only debt we have is the $16,000 personal loan. No car payments, no mortgage payments, no credit card debt, no school loans, etc.)

Cost of Education

I estimate that the cost of my education would be around $37,000 for tuition, fees, etc. I also expect I would need to quit my current job for one year to study, so we would also need money to live on during that time, a minimum of $30,000.

Possibilities for Financing Education

I would not be opposed to taking a student loan to finance my education and I would consider working part-time while in school, although the program is intensive and I would rather be able to not work and focus on my studies.

I also believe there are opportunities where my future employer would reimburse me for some/all of my tuition expenses. (I'm considering becoming an RN and some hospitals offer this type of program.)

We are financially stable at this point and I don't want the costs of my education and being out of work to study for a year to disadvantage us in the long run.

Question

With all of that background, that brings me to my question: What is the most financially sound way for me to finance my education? Which would be a financially better move - taking a loan to pay for school or using money from our investment account to pay for school? Or would other options be better such as a home equity loan or selling our investment property?

tl;dr I want to finance the education for my second career. We are financially stable now. Should I borrow money or pay out of our current investments?

  • Does your investment property produce income? – Pete B. Oct 29 '15 at 13:18
  • @PeteBelford No, it does not produce income. It's an empty lot at a lake. – Sara Barnes Oct 29 '15 at 19:52
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Tl;dr by anecdata I paid for my master's degree from investments/savings with a HELOC backstop

It appears you don't have the 62k cash needed for tuition and living expenses so your decision is between financing a degree by selling your investments or a loan.

Ultimately this comes down to the yes/no sell decision on the investments. Some things to consider:

  • How do you feel about selling the 70k investment, today? How would you feel about selling off the 30k you need at your choice of market timing over the next six months? Confident or panicked at the idea?
  • how would you feel if 1 year from now the job market for RNs is softer than expected (e.g. hospitals hold off on hiring to see where "Hillarycare 2016" might go) and the stock market takes a dive, such that what is 70k today is 35 or less at the time you really need the money?
  • is it feasible (if unhappy) to cut back monthly expenses to live on rental and disability income should it come to it?
  • its easier to get credit today (with a job and assets) than a possible worst case future. Consider a HELOC on your house and/or rental property. You don't have to use it, it deepens your liquidity, the interest is tax deductible, and the rate may be better than education loans.
  • on the other hand in order to get tuition reimbursement in your field, do you need a specific kind of loan for them to discharge? If yes, then just sign up for it because that's the only way into the free money.
  • Some good things to think about. My husband is not receiving disability income right now, but he is considering applying. We should make some progress on that. Our investment property doesn't produce any income (empty lot at lake) so there is no rental income either. We do get some gas royalty checks which total about $1000/month. I'll spend some more time considering these things. – Sara Barnes Oct 29 '15 at 19:56
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To me it sounds like you need to come up with 67K (30+37), part of the time you can work in the current job, part of the time you could work a lower paying part time job (for a year). Lets assume that you can earn 15K for that year, and you can save 5K from your current job. (I'd try and save more, but what ever you can do.)

67 - 15 - 5 = 47

I'd sell the investment property. First you will have some funds to throw at this need, second you expense should go down as you don't have a payment on this property.

47 - 26 = 21

You have 32K in cash which is a lot for someone in your expense range. Six months would be 15K, so I would use some of that cash:

21 - 17 = 4

Now you are really close. If needed I'd use the investments to cover the last 4k or even more of the on hand cash. However, could you do something to reduce that amount further ...like working more.

  • Thanks Pete. Your scenario makes it very realistic with no debt involved which I appreciate. Here's the breakdown of our cash: 15K in emergency fund, 7K set aside for car replacement, 4.5K set aside for recurring expenses like health care deductibles, insurance, etc., 2K set aside for home upgrades and computer replacement; the rest is "pure savings." What do you think of that? Should the 15K cover all that? – Sara Barnes Oct 29 '15 at 22:35
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Your first step should be to visit with the financial aid office of the university that you are considering attending, perhaps even before filling out the FAFSA.

You may be eligible for grants, scholarships, and subsidized loans, as well as unsubsidized loans. You should pursue the first two options first, and then when you know how much remains to be financed, we can evaluate which of your investments you might liquidate if further financing is needed.

There are a range of views on debt on this board. I take a very cautious approach to going in to debt. I worked full-time and took night classes to finish my degree without debt, but depending on your program that might not be an option. It seems that you also have a healthy relationship with debt considering the shape of your savings and finances as outlined above.

Apart from the above information about how much money could be obtained and at what interest rates, the other missing information is your current salary, and your expected salary range after completing the program. With all of that information I could make specific recommendations, but at this point, my only recommendation is to avoid liquidating any retirement accounts in your effort to invest in yourself if at all possible.

  • I appreciate the input. My current salary is 60K. Expected salary range starting out would be around 50-60K. I definitely want to avoid touching retirement; I'm just not sure how I feel about using the 70K investment money. We are cautious with debt too, so that's another reason I'm trying to consider all options. Looking into financial aid more is a good idea. – Sara Barnes Oct 29 '15 at 20:00

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